Donald Trump hit the ground running after his Inauguration on Friday, when two hours into his Administration he suspended a plan by Barack Obama to slash premium rates on some federally backed mortgages. The plan would have lowered FHA premiums by a quarter point. It’s an interesting first step for a President who made his fortune in RE. Housing should be used for shelter, not for speculation. Rapidly rising house prices do not strengthen a nation, they weaken a nation. Capital needs to go into productive enterprises. Housing on a net basis is not productive at all. It sucks capital away from truly productive endeavors. But politicians love giving out “freebies”, and virtually everyone is convinced that a strong housing market is a sign of a strong nation. And politicians want to look like they have big hearts, and care about us all. So they have piled on one subsidy after another onto housing since FDR. He decided his “well-intentioned” Housing Act of 1934 didn’t screw things up enough, so that was followed by the Housing Act of 1937. So thanks FDR and all of the big hearts in the government since then. I’d also like to thank the geniuses at the Federal Reserve, along with the Wall Street debt creation assembly lines, for completely distorting every nook and cranny of the credit markets. We are now in a situation where decent, honest people like the McDowell family, can not remotely afford to own their own home in a nice neighborhood. And the home ownership rate continues to fall, while rental prices keep outpacing overall inflation, squeezing more people. Millions of Americans wittingly and unwittingly became RE speculators during the housing boom and crash. While we can’t let individual homeowners off the hook for their actions, my disgust is directed at the three aforementioned “well-meaning” entities. We are ending a 35 year bond bull market. What happens in the multi-decade bond bear market to follow? All credit markets are completely distorted, and any sector intricately tied to interest rates is very concerning looking down the road. RE is likely to continue to morph into a cash only purchase, as the bond bear market intensifies next year and beyond. And what happens when the Trump Administration gets out of the mortgage financing business, as the Treasury nominee Steven “IndyMac” Mnuchin recently said. So once again, how are rapidly rising home prices good for a country?
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Trader Scott has been involved with markets for over twenty years. Initially he was an individual floor trader and member of the Midwest Stock Exchange, which then led to a much better opportunity at the Chicago Board Options Exchange. By his early 30’s, he had become very successful in markets, but a health situation caused him to back away from the grind of being a full time floor trader. During this time away from markets, Scott was completely focused on educating himself about true overall health and natural healing which remains a passion to this day. Scott returned to markets over fifteen years ago where he continues as an independent trader.
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